FAFSA Appeal for incorrect EFC

[debbieden]

My son has been eligible for the past 2 years for the Federal Pell Grant. He was denied the grant for the upcoming 2018/19 year because we moved money from our 401K and put it into another 401K account. Our 1099 shows a "3" rather than a "G' or "H". My husband is disabled and the code "3" is used because he is disabled. I met with a financial aid advisor at my sons university and they said "it was our choice not to keep the money". Meaning, because we have a retirement fund, (that we can not use because my husband is too young), we should be able to use that money for my son's tuition. BUT WE CAN'T use it! How can I appeal this? We can not contribute to his eduction. The university just keeps saying that the 1099 has to have a "G" or "H" code. Our financial status is the same as it was the past 2 years but they don't want to listen. Please help!

[dcandmc]

The 1099 distribution code of 3 would seem to indicate that money was taken from the 401(k) account based on your husband's disability, and available for him to use, which would need to be reported as parent income on the FAFSA. This is much different than doing a rollover from one 401(k) account to another, which shouldn't have any impact on the FAFSA EFC. Was it a direct rollover (trustee to trustee), or was the money given to your husband first, and he then deposited it in the second 401(k) account?

[debbieden]

Given then redistributed into another IRA. We wanted to move the money from an account that was not performing to another account.

[dcandmc]

In your first post, you said that the money was moved from one 401(k) to another 401(k). Now you are saying that the money was "redistributed into another IRA." A 401(k) and an IRA are not the same thing.

If a legitimate and proper rollover was done from one qualified retirement account to another qualified retirement account, this is what you need to tell the university. Be prepared to back up your claim with documentation.

[debbieden]

Yes it was from one legitimate account (American Funds) to another legitimate account (Ameriprise). I don’t know if they’re considered an IRA or 401k. The money was a 401k account originally - it is the retirement fund my husband contributed to when he was able to work.

I have shown the university the withdrawal and the deposit documents and they say it doesn’t matter. Because the 1099 code is a “3” they keep saying the same thing over and over. “It’s not a G or H so there’s nothing more we can do.”. My only option they offered is to write a letter to the US Department of Education and see if I can get the rules changed. Hardly seems like an option.

[dcandmc]

I wasn't asking if the accounts were legitimate; I'm asking if the rollover process itself was legitimate, meaning all the applicable IRS rules and regulations were followed. If the rollover wasn't done correctly, that would be a problem. This is one reason that if at all possible, a trustee-to-trustee (direct) rollover should be the process used. The possible problems (and the bad consequences) will be greatly reduced if the actual funds don't go through your hands when they are rolled over. I've got to think that in your case, the distribution code on the 1099 would show rollover, making the FAFSA and financial aid people happy, if the first company had sent the money directly to the second company, instead of giving the whole thing (less any required tax withholding) to the beneficiary.

Have you tried contacting the first company, and asking for a corrected 1099 with a rollover distribution code based on what was actually done with the funds? If you haven't done that, it might be worth a shot.

[debbieden]

Ok thank you! I will speak with them.